Optimistic outlook on North East offices

There is significant optimism in the regional office markets as the upturn in confidence, and recently a more stable economic position filters into occupier business strategies

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There is significant optimism in the regional office markets as the upturn in confidence, and recently a more stable economic position filters into occupier business strategies, according to the latest market analysis from GVA.

The Big Nine reports the regional city centre take-up levels were 14% above the five-year quarterly average. Take-up in Q2 was almost twice the average in Leeds and well above average in Birmingham and Bristol.

City centre and out-of-town take-up combined in the nine GVA regional office centres recorded 1,730,000 sq ft in deals for Q2, 7% above the five-year quarterly average. The city centre market made up 67% of this and recorded take-up of 1,161,000 sq ft, 14% above the five-year quarterly average. Unfortunately, in Q2 the out-of-town market dropped 5% below the quarterly average.

The city centre office market has seen strong take-up over the second quarter , with most cities above the five-year quarterly average. Activity was particularly strong in Birmingham, Leeds and Bristol and the three largest deals were recorded in these cities, including GVA’s 134,000 sq ft letting of Five Brindley Place.

Carl Potter, national head of offices at GVA, said: “Our Q2 analysis of regional office take-up is encouraging. Sentiment is up on what was already a positive Q1. Take-up figures will continue to improve. However, the concern remains that demand for Grade A stock continues and supply is only very slowly being replenished in a limited number of cities – in some there remains no new development.

“Without speculative development, an ominous tipping point will present itself. Demand has already started to outstrip supply in some regional cities and this will be replicated in all of our cities just 18 months from now.”

Tony Wordsworth, head of office agency at GVA, Newcastle said: “The situation in Newcastle shows similar trends, city centre office take-up in Q2 2013 was 43% up on the five-year quarterly average and there are concerns regarding the office supply pipeline. The new build starts at Stephenson Quarter and Science Central are a welcome sign of new development activity.”

Greg Davison, associate investment, Knight Frank, said: “There is no question that there is improving sentiment in the commercial property sector simply judging by increasing interest.

“How long this remains a feature of the market, bearing in mind we have faced challenging times for a number of years, remains to be seen but it is the summer, a traditional time for a reduction in tempo, and the opposite is presently happening.”

Looking specifically at the investment market Knight Frank has sold two high-yielding city centre properties on confidential terms. Both are office investments with one having an element of leisure. Both achieved high initial yields of more than 10% and both were acquired by private investors, and in each case there was an element of bank lending. Again they were reasonably large lot sizes commanding pricing of £1 to £2m each.